WEBVTT - Bloomberg Surveillance: Dine Brands CEO John Peyton 0:00:02.960 --> 0:00:06.760 Bloomberg Audio Studios, podcasts, radio. 0:00:06.920 --> 0:00:09.799 News, dine brands will be taking a closer look at 0:00:09.840 --> 0:00:13.120 the data. The owner of Applebee's and Ihup restaurants reporting 0:00:13.200 --> 0:00:15.960 fourth quarter profit that beat estimates, thanks in part to 0:00:16.000 --> 0:00:19.400 an aggressive promotion strategy. The CEO, John Payton's saying this, 0:00:19.720 --> 0:00:22.640 during the year, we found the guests limited their discretionary 0:00:22.640 --> 0:00:25.680 spend in response to economic pressures, and that this value 0:00:25.720 --> 0:00:28.880 conscious behavior continued in the fourth quarter. While this certainly 0:00:28.880 --> 0:00:32.600 creates challenging and dynamic market conditions, it also allows us 0:00:32.640 --> 0:00:36.599 to leverage our expertise in delivering exceptional value. John paynon month, 0:00:36.600 --> 0:00:38.080 please to say it's with us around a table, JOHNK 0:00:38.080 --> 0:00:39.760 and Mornick, Good morning. I want to kick it off 0:00:39.760 --> 0:00:41.280 with one thing and I mentioned it the commercial break, 0:00:41.320 --> 0:00:44.159 so reaching to continue this conversation. When Walker Hayes put 0:00:44.200 --> 0:00:47.239 together their song just a few years ago, did they 0:00:47.320 --> 0:00:49.319 talk to you about that ahead of time? How did 0:00:49.360 --> 0:00:49.960 that work out? 0:00:50.159 --> 0:00:50.199 So? 0:00:50.800 --> 0:00:54.280 Walker Hayes wrote the Deep Nighted Appleby's song two summers 0:00:54.320 --> 0:00:58.520 ago and it was a gift from above. We did 0:00:58.560 --> 0:01:02.000 not know what was coming. He is an actual Applebee's fan. 0:01:02.240 --> 0:01:05.600 He wrote about date night with his wife at Applebee's 0:01:05.680 --> 0:01:08.000 and he's been an amazing partner to work with. You know, 0:01:08.040 --> 0:01:10.320 we jumped on it. Our marketing team was all over it, 0:01:10.760 --> 0:01:13.360 and so you know that led to the commercial tiktoks. 0:01:13.360 --> 0:01:15.480 He did over one hundred appearances for us. He was 0:01:15.480 --> 0:01:18.720 at our national conference fabulous free marketing. 0:01:18.800 --> 0:01:20.920 How many people are doing date night at applebase now? 0:01:20.959 --> 0:01:22.080 How cost conscious are they? 0:01:22.480 --> 0:01:24.680 Well? Speaking of date night at Applebee's, we just had 0:01:24.800 --> 0:01:29.280 our date night event where we had we had a 0:01:29.319 --> 0:01:32.760 coupon available for two hundred dollars that enabled you to 0:01:32.800 --> 0:01:35.720 eat at Applebee's every week for fifty two weeks with 0:01:35.760 --> 0:01:37.800 a thirty dollars discount, so it was a fifteen hundred 0:01:37.800 --> 0:01:40.840 dollars value for two hundred dollars. We made that available 0:01:40.880 --> 0:01:44.160 at midnight a few weeks ago. It sold out in 0:01:44.440 --> 0:01:48.640 a minute, some some less than a minute. Some commentaries 0:01:48.680 --> 0:01:52.320 said that we broke the internet. Not quite. That we 0:01:52.400 --> 0:01:57.240 added server capacity, we added customer support, and our sites 0:01:57.320 --> 0:01:59.520 might have slowed a little bit, but it was so popular. 0:02:00.040 --> 0:02:02.840 Did it again in Valentine's Day? One thousand date night passes. 0:02:03.480 --> 0:02:05.559 So what are you seeing with respect to where people 0:02:05.560 --> 0:02:07.720 are coming from? Is it the same crowd that's always 0:02:07.720 --> 0:02:10.920 gone to Applebee's that just have more discretionary spending, Or 0:02:10.919 --> 0:02:13.360 do you see people sort of that might have gone 0:02:13.400 --> 0:02:17.079 elsewhere maybe that was more expensive coming to Applebee's or 0:02:17.120 --> 0:02:19.520 going to I Hop for an omelet that's very fluffy. 0:02:20.400 --> 0:02:24.359 A couple of insights at LISA about the consumer We 0:02:24.919 --> 0:02:26.680 get asked that question a lot. Are people trading in 0:02:26.760 --> 0:02:29.440 or out of the category, And from quarter to quarter 0:02:29.760 --> 0:02:31.560 we'll see a few more people come in at a 0:02:31.639 --> 0:02:34.400 higher income level, few more people at a lower income level, 0:02:34.880 --> 0:02:38.720 But over time it's actually fairly consistent. Our core guests 0:02:38.760 --> 0:02:42.040 from a demographic perspective, earns about fifty to seventy five 0:02:42.120 --> 0:02:46.560 thousand dollars a year, and that is literally looks like America. 0:02:46.680 --> 0:02:46.760 Right. 0:02:46.800 --> 0:02:49.600 We've got thirty six hundred restaurants across the country, and 0:02:49.639 --> 0:02:54.360 so our guests are families with children, older couples who've retired, 0:02:54.360 --> 0:02:57.680 who come to ie Hop every day for breakfast. And 0:02:57.760 --> 0:02:59.920 so what we do see from a consumer behavior standpoint 0:03:00.080 --> 0:03:03.200 couple of things. The first is throughout twenty twenty three 0:03:03.400 --> 0:03:05.640 and into twenty twenty four, you know, our guest at 0:03:05.680 --> 0:03:09.000 all three of our brands has been remarkably resilient to 0:03:09.280 --> 0:03:12.640 the extent that it really surprised us a bit. We 0:03:12.680 --> 0:03:14.560 do see from our data that they're eating out one 0:03:14.639 --> 0:03:18.240 or two times fewer per quarter than they did before. 0:03:18.320 --> 0:03:20.800 And when they make their choices, they are still looking 0:03:20.800 --> 0:03:24.160 for full service dining because prices are up almost twenty 0:03:24.160 --> 0:03:28.359 percent in restaurants versus twenty nineteen. And so if you're 0:03:28.360 --> 0:03:30.640 going out to eat and QSR has become more expensive 0:03:30.639 --> 0:03:33.200 as well, they want that experience, they want the service, 0:03:33.200 --> 0:03:35.280 They want everything that we have to offer at Applebee's 0:03:35.320 --> 0:03:38.600 and I Hopit and Fuzzies. Once they find us their 0:03:38.760 --> 0:03:42.160 very value focused and so you know, the percentage of 0:03:42.200 --> 0:03:44.560 our tickets that are taking advantage of our ltos, our 0:03:44.560 --> 0:03:47.960 limited time offers, and our value portion of our menus 0:03:48.360 --> 0:03:50.800 are up a few ticks from where it was before. 0:03:50.920 --> 0:03:53.400 So, then how do you maintain margins at a time 0:03:53.440 --> 0:03:55.640 where we keep talking about the fact that people are 0:03:55.640 --> 0:03:58.720 demanding higher pay. There's a whole question about worker retention, 0:03:58.920 --> 0:04:01.040 there's a whole question about to see input prices of 0:04:01.080 --> 0:04:03.600 a lot of foods and how they have remained sticky. 0:04:03.760 --> 0:04:04.520 How do you manage that? 0:04:04.680 --> 0:04:07.080 Yeah, so margins are the biggest challenge in the industry 0:04:07.160 --> 0:04:09.760 right now, particularly for our owners. We're one hundred percent 0:04:09.760 --> 0:04:13.320 franchise right so the impact of labor costs, the impact 0:04:13.640 --> 0:04:17.560 of cost of goods into the restaurants affects our franchisees directly, 0:04:17.920 --> 0:04:20.279 and so we focus on two things. We're doing everything 0:04:20.320 --> 0:04:22.120 we can to drive the top line right through really 0:04:22.120 --> 0:04:25.480 creative promotions and value offerings, and we work with them 0:04:25.680 --> 0:04:28.599 on re engineering as best we can the bottom line. 0:04:28.600 --> 0:04:31.200 So last year, for example, working with our franchise Ease, 0:04:31.440 --> 0:04:35.120 we took out fifty million dollars in cost across the system. 0:04:35.160 --> 0:04:38.440 And we focus on things that are sustainable and repeatable, 0:04:38.520 --> 0:04:40.520 so technology, process improvement. 0:04:40.760 --> 0:04:40.919 You know. 0:04:41.000 --> 0:04:45.239 One example is we're putting in automated beer dispensers, which 0:04:45.279 --> 0:04:48.119 saves you know, hundreds of thousands of gallons of beer 0:04:48.200 --> 0:04:51.760 a year by having more accurate coores, less and less waste. 0:04:51.880 --> 0:04:53.840 And so that's the way we're trying to automate things 0:04:53.880 --> 0:04:55.400 like that and help them manage their costs. 0:04:55.480 --> 0:04:58.520 Yesterday, Wendy's had received a ton of blowback when they 0:04:58.520 --> 0:05:00.359 came out and they're going to do dynamic price seeing 0:05:00.480 --> 0:05:02.560 they said, no, no, no, we're not going to raise prices 0:05:02.600 --> 0:05:05.400 on busy hours, but maybe we'll offer some discounts online. 0:05:05.520 --> 0:05:08.600 Could you ever see yourself doing that sort of mixed 0:05:08.600 --> 0:05:10.560 prices thing depending on peak and off peak hours. 0:05:10.880 --> 0:05:11.040 Yeah. 0:05:11.080 --> 0:05:13.040 So I come from the hotel industry, right, and I 0:05:13.520 --> 0:05:15.520 led revenue management when I was at Starward Hotels for 0:05:15.520 --> 0:05:18.719 a long time. And as you know with airlines, with hotels, 0:05:19.120 --> 0:05:21.440 no two people pay the same price for the same 0:05:21.480 --> 0:05:23.680 hotel room or the same ticket, depending on what channel 0:05:23.680 --> 0:05:25.400 they purchased it on, when they purchased it, if their 0:05:25.480 --> 0:05:28.120 loyalty status. You know, we've looked at it for restaurants, 0:05:28.120 --> 0:05:31.479 but we don't think it applies to us or our customers. 0:05:31.640 --> 0:05:32.240 At this time. 0:05:32.720 --> 0:05:35.800 We're hearing the words price scouching a lot down in Washington, 0:05:35.839 --> 0:05:37.359 d C. Can you talk to us about what you 0:05:37.360 --> 0:05:40.039 think about that. How difficult is it to bring prices 0:05:40.080 --> 0:05:42.080 back down to where they were a few years ago. 0:05:42.960 --> 0:05:46.359 It's difficult to bring prices back down when labor costs 0:05:46.400 --> 0:05:50.159 are escalated, and labor is pretty sticky, right, it tends 0:05:50.200 --> 0:05:53.039 not to come back down. The cost of goods and 0:05:53.120 --> 0:05:56.320 primarily food into the restaurants has stabilized, and we're even 0:05:56.320 --> 0:05:59.799 predicting some deflation in the cost of goods into the restaurants. 0:06:00.200 --> 0:06:03.440 Be's in twenty twenty four about flat to maybe plus 0:06:03.440 --> 0:06:07.359 one for IHOP When you translate that to pricing, and 0:06:07.400 --> 0:06:09.960 it's our franchisees who make the pricing decisions because they 0:06:10.040 --> 0:06:14.440 own the restaurants typically, you know, pre twenty nineteen. Everything 0:06:14.480 --> 0:06:17.720 is pre twenty nineteen, right these days, our franchisees raise 0:06:17.800 --> 0:06:20.240 prices about two to three percent a year. The last 0:06:20.279 --> 0:06:22.400 couple of years, it's been more in the five to eight, 0:06:22.600 --> 0:06:25.360 nine or nine percent. What we're seeing now with the 0:06:25.480 --> 0:06:30.000 stabilizing of both labor and cost of goods, we think 0:06:30.040 --> 0:06:32.520 they're back on a path to that two to three 0:06:32.600 --> 0:06:34.279 percent over the next couple of years. 0:06:34.360 --> 0:06:36.440 I want to talk about the automatic bear dispenser, not 0:06:36.560 --> 0:06:39.080 because I'm actually interested in the automatic beer dispenser, but 0:06:39.480 --> 0:06:42.839 it sort of highlights the amount and we talk about, 0:06:42.960 --> 0:06:44.479 you know, just you get a little bit less, and 0:06:44.520 --> 0:06:46.640 that's one way to manage a little bit less. 0:06:46.680 --> 0:06:47.920 It's an accurate pool. 0:06:47.720 --> 0:06:50.400 Okay, understandablabor, then you could just make it an accurate 0:06:50.400 --> 0:06:51.920 pore of a little bit less. I mean, how much 0:06:51.960 --> 0:06:54.280 is that something that's going on around the margins? 0:06:54.320 --> 0:06:59.600 So never ever, so our definition of value is is 0:06:59.760 --> 0:07:03.880 great eat food at a really accessible price, an abundant portion, 0:07:04.240 --> 0:07:06.560 right and the experience you have in the restaurant. And 0:07:07.120 --> 0:07:10.440 Applebe's and I Hop and now Fuzzies. But Applebe's and 0:07:10.440 --> 0:07:12.440 i Have in particular have been around for fifty and 0:07:12.520 --> 0:07:15.640 sixty five years, and you know, they've cemented their reputation 0:07:15.680 --> 0:07:20.000 in consumers' minds as the value oriented brand in both 0:07:20.040 --> 0:07:23.480 their categories. And you know, I'm a former chief marketing officer, 0:07:23.520 --> 0:07:25.000 and you know what I've been taught about brands is 0:07:25.000 --> 0:07:28.080 that you people go to brands they know and they trust, 0:07:28.520 --> 0:07:30.040 and you can trust that Apple Be's and ihop are 0:07:30.080 --> 0:07:32.320 always going to have an abundant portion. And that's that's 0:07:32.360 --> 0:07:32.960 sacred for us. 0:07:33.000 --> 0:07:35.520 A pint should be a pint. I'm talking English mashes, 0:07:35.520 --> 0:07:37.200 of course, but a pint should be a pint. B 0:07:37.600 --> 0:07:38.320 noice string flash. 0:07:38.480 --> 0:07:40.000 I just want to say, but warm, the pint is 0:07:40.000 --> 0:07:41.400 always warm, which I haven't understood. 0:07:41.400 --> 0:07:43.760 It's a different kind of pint against that another time. 0:07:43.640 --> 0:07:45.960 To say, in Europe they actually have lines and all 0:07:45.960 --> 0:07:48.040 the wine glasses to have accurate pores, so it's. 0:07:47.960 --> 0:07:50.600 Something that they should have an accurate pull. I've saved 0:07:50.600 --> 0:07:52.440 this to the end of the conversation, because I don't 0:07:52.560 --> 0:07:53.800 know to upset you too much, but this is going 0:07:53.880 --> 0:07:55.480 to sound terribly right, So I forgive me for the 0:07:55.480 --> 0:07:57.480 frame of this question. I'm just blunt British. Call me 0:07:57.480 --> 0:08:00.160 whatever you want. How dependent are you want for twenty 0:08:00.160 --> 0:08:02.960 percent of this country? Rumenicabase? What happens if a zempic 0:08:03.000 --> 0:08:05.520 actually does something abouts it? What happens to you? What 0:08:05.560 --> 0:08:07.040 happens to this organization? 0:08:07.800 --> 0:08:11.120 So the most the response to that is that our 0:08:11.240 --> 0:08:13.640 menu has something for everyone, right And if you went 0:08:13.680 --> 0:08:17.640 to ihop years ago, it didn't have protein based, plant 0:08:17.640 --> 0:08:19.800 based proteins, you know, it didn't have a series of 0:08:19.800 --> 0:08:23.120 egg white omelets, it didn't have gluten free pancakes, you know, 0:08:23.160 --> 0:08:25.080 And the same is true. The same is true at 0:08:25.080 --> 0:08:27.360 applebe So you know, what's important for us is that 0:08:27.720 --> 0:08:31.080 no matter what the dietary orientation is of someone in 0:08:31.400 --> 0:08:33.120 that family, that we have something for everybody. 0:08:33.320 --> 0:08:36.560 So right now, are you factoring in any kind of 0:08:36.840 --> 0:08:40.000 shift from that type of change given the fact that 0:08:40.280 --> 0:08:42.880 there is a pretty rapid adoption for these weight loss. 0:08:42.640 --> 0:08:46.400 Medications, we haven't seen yet any material impact on our business, 0:08:46.440 --> 0:08:48.880 and we're not factoring it in terms of our predictions 0:08:48.880 --> 0:08:52.200 about traffic and comp sales, which really our focus is 0:08:52.240 --> 0:08:54.600 on the menu and ensuring that whether you're at any 0:08:54.640 --> 0:08:57.560 one of the three brands, there really isn't something for 0:08:57.640 --> 0:08:59.520 anyone depending on how they eat and how they choose 0:08:59.559 --> 0:08:59.840 to eat. 0:09:00.120 --> 0:09:02.600 Because of this craze, almost do you feel like you're 0:09:02.640 --> 0:09:07.079 pushed more into being well healthier on your menu? 0:09:08.160 --> 0:09:12.080 That push preceded ozebic, right, So the way Americans eat, 0:09:12.240 --> 0:09:16.319 you know, has been journeying slowly right toward more healthy 0:09:16.360 --> 0:09:20.360 eating over time. So portions changed, Our portions have always 0:09:20.360 --> 0:09:22.520 been the same. It's more about what we're offering and 0:09:22.559 --> 0:09:23.840 having broader menu. 0:09:24.200 --> 0:09:27.400 Can I just ask one more question about the technology investments. 0:09:27.840 --> 0:09:30.160 I'm just wondering, do you think that we will always 0:09:30.240 --> 0:09:33.680 have service in the form of a human I do. 0:09:35.800 --> 0:09:38.520 I use the phrase that we are not a technology 0:09:38.520 --> 0:09:42.320 company that happens to serve food. We're a food company 0:09:42.360 --> 0:09:47.360 that embraces technology. And so, for example, at IHOP, we've 0:09:47.559 --> 0:09:50.559 just rolled out a new POS across the whole system. 0:09:50.600 --> 0:09:53.400 We've got fifteen fifty restaurants to go, and with it 0:09:53.440 --> 0:09:55.959 came handhelds for all of our servers, and so our 0:09:56.000 --> 0:09:59.280 servers love it because they're turning tables faster. They're making 0:09:59.440 --> 0:10:03.800 more tips. Our franchisees love it because we're turning tables faster, 0:10:04.040 --> 0:10:06.480 and we're also raising the average check because servers are 0:10:06.720 --> 0:10:09.240 attaching beverages more often. Sometimes you forget to put that 0:10:09.440 --> 0:10:11.480 soda on the tip when you're on the check, when 0:10:11.520 --> 0:10:14.079 you're really busy. So it's it's technology like that that 0:10:14.160 --> 0:10:17.120 we're using to enable the experience. We're also allowing guests 0:10:17.440 --> 0:10:19.400 via our app if they want to order in advance 0:10:19.480 --> 0:10:21.600 and then seat themselves at the table, then they can 0:10:21.640 --> 0:10:23.559 do that. But it's more about how they want to 0:10:23.559 --> 0:10:25.240 interact with us and giving them all those options. 0:10:25.400 --> 0:10:27.400 John, this was great. I promise never ever to share 0:10:27.440 --> 0:10:28.800 the secret ingredient in the omelet. 0:10:28.920 --> 0:10:31.160 Okay, I have no idea what you're talking about. 0:10:31.240 --> 0:10:33.000 John, Thank you. Jump paid on the time friends, John, 0:10:33.040 --> 0:10:34.800 thank you very much. This is great. Appreciate it.